Business Innovators Radio - Interview with Dan Foss with Foss Financial Services

Episode Date: July 16, 2024

Daniel Foss (ChFC, CLU) is the CEO and Founder of Foss Financial Services LLP, a personal and business wealth advisory firm that specializes in estate and retirement planning. Daniel specializes in the structuring of financial strategies to maximize wealth preservation and minimize tax consequences for his clients. He has been serving Bay Area individuals and small business owners for over 25 years.Learn more: https://fossfinancialservices.com/Dan Foss, ChFC, CLU, is a licensed and experienced Chartered Financial Consultant (ChFC) and a Chartered Life Underwriter (CLU). The purpose of this Foss Financial Services podcast is to introduce Dan Foss and share his decades of training, education, and real-world experience to the public for informational purposes only. Dan’s opinions are not intended to be used or construed as specific financial planning or estate planning advice, legal advice or tax advice, for any individual or investor. No products or services shall be promoted on these podcasts. The contents expressed are not sponsored by nor paid for by any product, service, or services provider. Interested parties desiring personalized advisory services for their unique financial planning must schedule a private appointment to confidentially review their financial goals and objectives to best plan options suited to achieve their goals.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-dan-foss-with-foss-financial-services

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of influential entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have with us Dan Foss, who's with Foss Financial Services. Dan, welcome to the program. Thank you for having me. Hey, you're welcome. So give us a little bit of your story and your background. And how did you get into the financial services industry?

For close to 30 years now, I've been working in financial services, helping both professionals and small business owners with personal financial planning and estate planning. And more appropriate also a business-related planning, typically working at a team setting with other advisors and myself. I feel more of a financial position, but there's also considerations around tax planning. and legal planning that often come up for our clients. So what got you initially into the financial services industry? Was that your first choice out of college? I minored in real estate, but also did a degree in finance. When I finished college, I was a non-traditional age student.

I went back at 24 and got done at 28. And somebody introduced me to estate planning and business-related planning. and that really attracted me in the industry itself. A lot of it is dealing with retirement income distribution planning for a lot of people, both mid-market and advanced planning for myself. Again, the motivation is really I like helping people, and this is something that attracted me to the industry. And again, I bring a certain expertise that's sometimes missing,

in people's planning services. I often talk to them about looking yourself inside of a triangle. You have a tax advisor, a legal advisor, and someone like myself as a financial advisor. And all three of those disciplines together put you essentially as a board of directors around you to point you in the right direction for both, you know, retirement, tax management, estate planning legal matters as well. Yeah, having that team in place is really powerful because not one person can be relied on to know everything about everything. I think that's a huge point that a lot of people don't pick up on. So when you've got that team approach, now you're able to have someone that specializes

in one aspect of what they need, maybe financial, maybe tax, maybe legal. So is that what you've assembled as kind of like a team approach that way? Yeah, a stable of advisors, depending on what people's needs are. And I always make sure that two or three referrals or recommendations are. Whether it be an attorney, an investment advisor, a tax advisor. It's a lot like when you think about getting medical procedure done, you don't want to go to a general physician if you need brain surgery or spine surgery. You want to go to a specialist. And even within the field of law, there's specialties.

Some deal with just state planning. Some deal with just business planning. And so you want to kind of line up what your objectives are and then dial. in the advisors around you. When it does take a team or a village to raise an estate plan or a business plan, it's not just one advisor or one person's input that will put people in the best position. It's a, it's a, let's a combination of disciplines that need to be included into planning. Yeah. And probably when you work with someone at the beginning, what if they had a estate planner or an attorney? You're not going to make them use yours. You're going to fold their current advisors

into your team and then you're going to bring your piece of the puzzle to the equation and make sure everyone's on the same page. Correct. And I learned years ago from my mentor, I built my career riding on the shoulders of giants. But when people do mention that they have an advisor, it's always appropriate to qualify what that advisor does, what they've done for them, what their experience has been if they like the advisor, it's always a good question. But, yeah, do you want to determine what,

efforts or what planning they put in place for the client. A lot of times when people think of advisors, the first thing in their mind is an investment advisor. And those are great people to have on your team, but they're not necessarily risk management related or defense related, if you can say that. And it might be good at building wealth or creating assets for people, but their bailiwick or what they do is primarily growing assets. Again, when we talk about income distribution planning for clients, tax management planning, you're moving more to a defensive position. That's more prevalent now because a lot of people, when they're moving towards retirement, they realize that for the most of them, they have all their retirement assets, 100% subject to market risk. Previous generations,

people would have pensions that provide a guarantees. So people might walk off into retirement, you know, one, two, three, five million. It's all in the 401k. And so investment advisors will tell them just to stay on this train and we'll do great. We'll grow along with the market. But people don't really feel that way as they approach their 60s and move into retirement. They're really risk adverse. They're not looking for growth necessarily. They're looking for more safety and more predictability. And I think that a lot of times that's missing in people's planning. and we could show them, you know, ways that shed light and show them ways that they can create more efficiency from income distribution planning and from tax planning and how they're

set up. Yeah. And I know that, you know, so many people are tired of the market, kind of giving them a sock of the jaw with volatility. And so you mentioned having that, you know, reliable income and safety. And you do a lot of work with annuities, but a lot of people hear the word annuity and go red flag. Why do you think they've received such a bad rap? I think from the outside, people look in and say, well, somebody's got a win or lose here,

and the insurance companies might be the winner in this situation. If I die, you know, the benefits go away. But a lot of people have gravitated towards the bond market because they felt there would be more safety. And bonds are good when the market's stable. But when the market's unstable, you know, you have Silicon Valley Bank that suffered from the bond market when interest rates got raised on them, which lowered the value of their portfolio. So when the markets are in flux are not stable, that has a negative impact on bonds. And that's really where a lot of the money flooded to.

And in my tenure as a professional, there's a dot-com era we went through. Everybody's going to get rich overnight. And then everybody went to real estate. And there was a collapse in 2008 with the real estate market. And then there was a flood over to the bond market because people were in their mind. like, well, that seems like the safest place to move. And what they're finding now is that's not necessarily true. And so annuities have a lot of ways taken over for the bond market in retirement.

If people are familiar with bond laddering, if you use an annuity or an indexed annuity in place of a bond ladder, you actually create more safety and more predictability. You've eliminated the two risks that are associated. to bonds, which are reinvestment risk and interest rate risk. And so we're at a point in time where another way to say this is when interest rates are low is when you want to refinance your house. When interest rates are high, that's when you want to take advantage of annuities. So it might seem a little bit different, but now we're in a high interest rate environment. We're at a point in time. it's unprecedented in almost 30 years that I've been doing this as far as what the insurance

companies are providing to clients, 20% bonuses on the front door when you come in. Previously it was 10%. So it's more than doubled. And a lot of it's being predicated or pushed because of this high interest rate environment. The other thing, too, is... And you want to do that, if I'm correct in thinking this, because a good annuity will provide fixed returns. So you're actually locking in a certain interest rate for a period of time when the rates are high, like you're mentioning. Yeah, and it's important to delineate when you say fixed. So there's fixed annuities. Those are annuities that may pay a 3, 3.5% interest rate. There's variable annuities, and these are unleashed or unharnessed, or a lot like your 401k.

They can go free with the market. So you have unrestrained growth. But you also have unrestrained downside potential. With these fixed indexed annuities, they don't actually line up in the middle of fixed and variable. They are more like a fixed index, a fixed annuity because they have guarantees that they can't perform less than 0%, but it also has a cap on the upside. But due to the fact that they're tied to an index like the S&P 500, they track along with equities. So they give you performance that's closer related to equities, but they give you safety. because of the guarantees from the insurance companies, the zero floor and so forth,

that they feel more like, they actually are technically fixed income assets, like CDs, like fixed annuities. And a lot of people don't realize when they purchase these products or when they invest in these, that the money is actually not in the index.

It's just mirroring or imaging an index. And that's what the performance is predicated on. And so your money is safe. It's not subject to market risk, but it's tracking an index for growth and for performance. Yeah. Well, it kind of makes me think of this. You hear one little stat or headline and it's like, oh, well, then that's the solution for everything.

But there's not one solution for every person in every situation. So annuities might be great. Fixed indexed annuies might be great. And so might other kinds. But it's going to be different for everyone. And that's why it takes sitting down and going, what are your objectives? Let's look at long term. and where are you at right now and to get from where you are now to where you want to be,

what do we need to do? And all of a sudden, now it's like you're crafting the perfect plan for someone and the next person that comes in the door might be totally different. Correct. It's like tailoring a suit. And it's true even with Social Security planning. It depends on your age, your health, if you're still working. So the answer is not the same for everybody.

And the same thing if you're designing income distribution planning for an individual. So, you know, if you have a federal employee, they're going to have a strong pension. If you have somebody who worked in private industry, they're going to have maybe a large retirement account, but they're going to have a stronger need for income distribution planning because there's a lack of it in the 401k side of it. Yeah. One thing, too, when you, when people do investments, a lot of times the mentality is that I can, I can perform better.

I will track better if I just leave it in the market. And you should because the fact that. you're taking a little more risk, you should achieve higher returns. But the nuance of the way that annuities works is there's only three sources that can provide guaranteed income in retirement. And that's a pension in Social Security and annuities. And annuities are only sold by insurance companies. And they do something that no individual can do on their own.

They create lifetime income with no risk. And so, again, if you take a position of an IRA or 401K balance, maybe, you know, if you have $2 million in a 401k, you might put $750,000 into an annuity product, and that may generate something in the range of 70 or 80,000 a year guaranteed for the rest of your life and your wife's life if you happen to be married or with somebody. And so when you put that in as a baseline for retirement income planning, you have predictability on top of what's coming in with Social Security. And so as an example, if you need $100 to work on each month and $70 of that is fixed cost and 30 of it's fun, you know, like going out and vacationing and dining out and so far, a lot of people will dial up the annuity component of their retirement with Social Security

so that they're closer to that $70 that they're trying to achieve. So they know they can create that income through their portfolio. and that whole mindset of a 4% withdraw, that there will be money left for your kids and so forth, that's kind of gone by the wayside. The mentality of a, do you have a 60-40 portfolio or 70-30, again, stocks to bonds ratio? That's, again, kind of gone by the wayside.

So there's a different vein of thinking in financial services and financial planning industry. One, it's really taken light that a lot of people may not be aware of, is it's really important to hold cash in retirement. People will have three to six months of cash while they're working, but they found out that you want to have three to five years of cash in retirement. And so if you need 100,000 a year to live on, you want to have something like three to 500,000 in cash.

And what that does for an individual is it buffers their investment portfolio for them when there's a down market. So they leave their investments alone, say 2008 when everything went down 40% or 20, when it went down 20%. And then you leave your portfolio loan, you dip into your cash position. And they've proven this over multiple timestamps with big data modeling with computers

that you'll end up with higher net worth at the back end of your retirement using that strategy versus having all of your investments, all your money invested in the market at one time. And that was the old school thinking is that if you don't have all your players on the field, you can't win. But that's not correct.

You want to have some in defensive position, some in cash. you'll have people like the Fisher group, Ken Fisher, they'll say out loud that annuities are a bad thing. There's something you want to avoid with all your might. But what's happening from those investment advisor is that they want to maintain those investments under management. And it's no fault of their own.

They want to help to grow it for you. But they're also receiving fees and compensation. So when you move money outside of the investment account to an annuity, that eliminates those ongoing fees going forward. Of course, there's commissions or compensation that's built in the annuity products for those individuals, advisors that use them. But when it's appropriate, you can show mathematically how it works. We just did a plan for an individual, and it was a little atypical, but his net worth doubled at age 90 from $4 million to $10 million by utilizing annuities. He has a very, very strong cash position.

And this is somebody who was averse to annuities, but when we show the modeling and the math, hey, if you included $1 million out of this large account you have into an annuity that generates $140,000 a year, this is the result for your net worth and your retirement assets. And so, again, the answer is different for everybody. We've done it before where it doesn't work out. And that would be like an individual that may have strong real estate rental income. So that's a lot like an annuity. So again, there may be redundancy in some situations, but sometimes it works out very well.

And there's nine asset classes that people can be in, you know, 401K IRAs, investments, life insurance, you can own a business and so forth. And annuities are another one of them. So it's not that any one of them is good or bad or right or wrong. It's just there's degrees of appropriateness when you look at across the board of what you can have your money invested in as far as trying to generate income for retirement. You know, when I hear the word fixed, and we've discussed how the fixed is, you know, connected to an index, so fixed index annuity, kind of makes you think set it and forget it. So do annuity policies need to be reviewed periodically, or is it set it and forget it?

No, they should all be reviewed. One of the misnumbers are disadvantages. It's true of also on the 401K side, but with annuities and even life insurance, as people, they kind of it and forget it. You want to go and review these programs periodically. If you're in an income payment mode, you really don't need to because it's generating income. But if you have one that's accumulating and growing for you, you want to go back and test it and challenge it, kind of acid test it. The thing you're looking for is one of the results when you're in your 80s or 90s. Is it running out of steam? Is it going to hold up and do what you want it to do? It's very important now,

and especially in light of the way that the annuity industry is reacting and behaving from the insurance companies, even if you have an old annuity, it is worth going out and looking at what you have, but also comparing it to what potentially could be offered to you from a carrier today. So if you have one, it's three years, five, ten year old annuity, it is definitely in your interest to go and evaluate that. And then also draw a side-by-side comparison. And what if I move this to another carrier? We do this for clients. And again, there's no right or wrong answer here.

But you want to do is you want to, and it's an easy exercise. We have one client that he has a $100,000 annuity with an unnamed company. And so we just say, ask them what the payout is on that contract. And then you just go compare it to what they might have in the market. And of course, people want to go to the highest one. Yeah, exactly. Yeah, nothing said it, forget it, and always things could change on the side of the actual annuity or the market where you can move some things, but also some things could change on your personal needs. You may need more money today than you did five years ago.

So having that checkup, you know, annual checkup or whatever frequency there really helps you just keep your finger to the pulse of where you need to be. Yep. And the annuities, again, will help to create a predictable income stream. It eliminates market risk on those proceeds. But that also allows you to be comfortable with the assets you do have in the market. Because when you build in that predictability, that guaranteed income, if the market's going, you know, sideways or up or down, you're kind of like, okay, just let it do what it's doing. I've got, you know, this baseline of income along with Social Security that I've created for myself. 100%.

Because the only thing constant in life has changed. I think that's something we can all kind of smile and agree with. Definitely, definitely. And it's a lot has changed just over the last few decades, both for economic markets, financial markets. You know, we're truly a global economy. There's a lot of sophisticated investment planning that's available. now, but that's also flowed through into these annuity products. And if you're not familiar with how callers work, they were typically reserved for high portfolios, large net worth portfolios,

and they use callers to create a position where if you suffer a loss, you can protect that position for not to go below a certain number. And so they've extended this through these fixed indexed annuities to use caller planning. So they've extended this down to, you know, Joe and Sally now so they can do it with $100,000 or $250,000, or normally that was done for two and a half million portfolios, five, $10 million portfolios. And because of the ease of computerization, they're able to afford that protection now at a smaller scale for somebody like, you know, that maybe worked as an administrator their entire career and they're looking for more safety.

So that's, again, there's some things that you can gain. but it's also important as modeling the entire retirement picture and understanding, you know, where your exposures are, both from a tax perspective and a risk perspective and how you can dial those back or control those more. 100%. Well, Dan, it's been really interesting hearing all the options and opportunities regarding how annuities could fit into a retirement plan safely. If someone's interested in learning more about this and also reaching out and connecting

with you, what's the best way they can do that? You can go to our website, FOS Financial Services, and feel free if you want to reach out directly. My email is Dan at FOS Financial Services, and we'd be happy to share any information or insight. Again, we really advocate providing education and knowledge to people, but in a way that that knowledge will help you, that you can use it to your benefit or use it to help yourself. 100%. Well, sounds great.

Well, Dan, thank you so much for coming on today. It's been a real pleasure talking with you. Yeah, thanks for having me on board. I appreciate it, Mike. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www.com.